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US equities dipped overnight, with the S&P 500 falling 0.3% and the Nasdaq and Dow showing similar declines. In contrast, the Euro Stoxx 50 gained 2.0% and the FTSE 100 rose by 0.5%. Meanwhile, the yield on the US 10-year bond dropped 5 bps to 4.41%.
Initial jobless claims dropped to their lowest level since May, down by 4,000 to 217,000, indicating strong demand for workers and reducing any urgency for the Fed to consider rate cuts.
Additionally, October’s PPI data came in slightly stronger than expected, with both the headline and core measures increasing. The index excluding food and energy rose 0.3% month-over-month and 3.1% year-over-year. Key components contributing to the PCE deflator were stronger than anticipated, prompting analysts to raise their core PCE deflator forecasts to 0.3%. Recent inflation data show no further decline in inflation, and the projected annual core PCE rise of 2.8% year-over-year would mark the highest since April.
Fed speaker Kulger mentioned that with the ongoing but slowing trend in disinflation and a cooling labor market, it’s important to stay focused on both aspects of the Fed’s mandate. Meanwhile, Fed’s Barkin acknowledged that the central bank has made “great progress” but stressed that officials can’t yet claim success.
Overall, the USD hit a new high and is up 2.5% this week. While technical indicators show the USD is significantly overbought and could potentially return to pre-election levels, with markets scaling back rate cut expectations, it would likely take weak economic data to trigger that kind of pullback in the near term.
AUD/USD continued its descent, approaching 0.6450. The strengthening USD, weakening commodities, and Powell’s remarks pressured AUD broadly. The next support level lies at 0.6350, the August 5 low. AUD/USD’s trajectory will largely hinge on the anticipated temporary USD surge post-US election.
AUD/CNH remains under pressure near 4.70. China’s economic data release is today’s focal point. PMIs suggest recent policy easing is yielding modest economic improvements. A stronger Chinese recovery could bolster AUD/CNH and AUD crosses, but may require more direct government support.
AUD/EUR slightly declined. ECB’s October meeting minutes were dovish, with officials increasingly confident about continued disinflation. Markets now anticipate 25bp cuts in the next three ECB meetings.
AUD/JPY faces potential volatility due to Japanese intervention. JPY has weakened 11% against USD since mid-September, concerning Japanese authorities. Expect more verbal intervention and possible market action if trends persist. Japan’s Q3 2024 growth is expected to have moderated from Q2’s strong performance.
AUD/GBP stabilized around 0.51. UK Q3 2024 GDP growth is forecast to slow to 0.2% from Q2’s 0.5%. The UK economy has outperformed expectations this year. Another positive surprise could lead to fewer anticipated rate cuts, potentially pressuring AUD/GBP. Currently, markets price in only 56bp of cuts until September 2025.
Today, NY Fed President Williams and BoE Governor Bailey are scheduled to speak at separate events. This afternoon, Japan’s Q3 GDP and China’s monthly economic indicators will be released. Later in the evening, the main highlights will be the UK’s Q3 GDP and US retail sales data.
Mid-market rates.
| Currency Pair | Mid-market rate |
| AUD/USD | 0.6454 |
| AUD/NZD | 1.1036 |
| AUD/JPY | 100.86 |
| AUD/CNH | 4.6817 |
| AUD/EUR | 0.6129 |
| AUD/GBP | 0.5098 |
| AUD/HKD | 5.0222 |
Chart of the day
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